Ongoing market volatility, evolving U.S. economic and trade policy, and global risks cloud outlooks for 2025. Josh Nelson, head of global equity, T. Rowe Price, recently discussed the equity asset classes the firm is closely watching this year in a webcast hosted on the VettaFi platform. These include potential opportunities around inflation and international exposures, as well as value and SMIDcaps.
See also: 2025 T. Rowe Price Equity Outlook: International and Inflation
Broaden Out on the Domestic Front With Value
This year brought about a pullback in the top performing stocks of the last two years, and the tech sector broadly. However, other industries that previously lagged generated stronger returns, reflecting a broadening of performance within U.S. equities. This broadening creates opportunities for value to outperform.
As the rapid gains of high-growth companies slows, it gives the rest of the market a chance to rise, providing the U.S. avoids recession. Broad equity indexes became highly concentrated in the last year, with the Magnificent Seven driving most performance. That trend reversed in Q1 2025, with Mag Seven stocks lagging while the rest of the index generated returns.
“Of course, as we know, all of the companies are in very good positions. It’s just about the relative valuation and the relative fundamental growth that we see,” Nelson said. “A broadening of the market, of more participation of companies outperforming, is really good. It’s better for markets, in my opinion, and it’s much better for active management.”
Health care has potential looking ahead, though investors should mind regulatory risks. Evaluating the sector on a company-by-company basis, and by subindustry, may help to reduce some of these risks. While pharma faces regulatory and reshoring challenges looking ahead, Nelson sees opportunity in life sciences, med tech, and the innovative parts of health care.
Look to Active Strategies for Their Research, Expertise
Broadening also leaves small-caps attractively positioned. With relative valuations at historic levels to large-caps, they’re worth consideration. Tariff impacts may also affect small-caps to a lesser degree than their larger, more globalized peers. These companies generally are more domestically focused, with wider sector distributions. However, investors should stick to actively managed strategies when investing in the asset class.
“They are riskier — that’s why it’s important to not own the broad index, but invest in strategies, ETFs, others that pick out the best companies,” explained Nelson. Look to active strategies, where a company’s “balance sheet will be analyzed and understand how they can withstand potential trade wars and potential periods of economic weakness.”
Those seeking opportunities in value should look to the T. Rowe Price Value ETF (TVAL ). The strategy focuses on undervalued and temporarily out of favor stocks with notable capital appreciation potential. Meanwhile the T. Rowe Price Small-Mid Cap ETF (TMSL ) invests across the SMIDcap space, in both growth and value companies. The actively managed strategy focuses primarily on individual company analysis first, but also considers broader trends and market cycles. The managers seek those companies that demonstrate high return on capital, attractive relative valuations and operating margins, and a solid balance sheet and management.
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